U.S. 10-Year Treasury Yield Nears 'Psychological Line' of 5%

As a sell-off in U.S. government bonds continues, the 10-year Treasury yield, considered the most crucial indicator in the market, is on the verge of breaking the 5% mark.

Concerns have spread that if the 5% threshold, viewed as a 'psychological line of defense,' is breached, it could deal a blow to the stock market and the broader economy.

On the 10th (local time), the 10-year U.S. Treasury yield, a global benchmark for interest rates, stood at 4.964%, surging 12 bps from the previous day.

This marks the highest level since October 2023.

At that time, breaking past 5% was the first instance in 16 years, since July 2007 just before the global financial crisis.

The 10-year yield had climbed from the 3.3% range in April of that year to surpass the 5% line in five months.

It was a period when the Federal Reserve (Fed) was raising its benchmark interest rate from 5.00% to 5.50%.

The Fed's 19-month rate hike cycle (from 0.00% to 5.50%) concluded with a final hike to 5.5% in September of that year.

However, the 10-year yield, which had risen above 5%, reversed downward within days and fell back to the 3.8% range by December of that year.

The Wall Street Journal (WSJ) pointed to several factors behind the recent rise in bond yields: international crude oil prices breaking back above USD 100, robust producer price index data released on this day, and President Donald Trump's pledge to pay USD 5,000 (approx. 6.7 million won) to every adult if he wins the midterm elections in November.

Treasury yields have been on a steady upward trend since late June.

Treasury Secretary Scott Bessent had signaled an expansion of long-term Treasury buybacks to curb rising yields, but it failed to take effect.

On this day, the U.S. Treasury launched its first expanded buyback, purchasing only USD 5.187 billion worth of remaining 10- to 20-year Treasuries, falling short of the USD 6 billion maximum limit.

The assessment that it was a passive purchase failing to fill the maximum limit triggered selling pressure out of disappointment, fueling the rise in yields.

Many pointed out that the intervention was minimal compared to the USD 31.5 trillion Treasury market.

An auction of 30-year Treasury bonds also took place on this day.

Treasuries worth USD 22 billion were auctioned at a yield of 5.308%.

This yield is the highest since 2001.

The rise in yields has increased the U.S. government's borrowing costs.

The market is paying close attention to the 10-year Treasury yield, which stands a chance of breaking 5%.

The 10-year Treasury yield not only serves as the benchmark determining borrowing rates for corporate bond-issuing companies, but also exerts a major influence when calculating U.S. mortgage and student loan rates.

Sam Stovall, chief investment strategist at CFRA Research, forecasted, "A 5% yield is a psychological line that amplifies investor anxiety," adding, "If this line collapses, it could lead to further weakness in the market."

The Wall Street Journal noted that rising Treasury yields not only increase borrowing costs for consumers and corporations, but also act as a factor drawing investors away from risk assets like stocks and into the bond market.

Rey Remigio, vice chairman at Daiwa Capital Markets America, said, "The bond market is sending a very clear signal that the Fed will raise interest rates," adding, "The bond market is not waiting for the Consumer Price Index (CPI) to be released on the 11th to make this judgment."

Investors are turning away from the bond market for the time being, focusing instead on the release of the price index and the Fed's rate decision next week.

Mark Hackett, chief market strategist at Nationwide, posed the question, "If the CPI released on the 11th significantly exceeds market expectations, will the stock market enter a prolonged slump?", evaluating that, "This is a risk factor greater than the arbitrary 5% Treasury yield figure that people have fixed upon."

(Photo: Getty Images)
※ Please note: This article was translated by AI and may contain errors.